State agency proposes $771,000 fine against a Cook Inlet independent over unplugged wells

State oil regulators are threatening to hit an independent oil and gas company with $771,000 in fines for failing to properly seal two exploration wells in the Cook Inlet region, and for failing to respond to proposed enforcement actions.

A senior adviser for the company, Nordaq Energy, said it hopes to avoid the sanctions by completing the required work this spring and summer.

Nordaq is a small oil and gas explorer formed in 2009 that has projects on the North Slope in addition to the Inlet area. It owns 17.5 percent of the leases in the potentially giant oil field owned largely by Caelus Energy at Smith Bay.

Caelus announced in October that the field, on the Slope, contains about 3 billion barrels of recoverable oil, though key tests to help verify that number have not been completed.

The Alaska Oil and Gas Conservation Commission, chief environmental and safety regulator for oil and gas wells, has expressed frustration with independent oil and gas companies new to Alaska, which it says are not following rules.

It has issued an unusually large number of fines and other enforcement actions in the last two years to force compliance, by companies like Hilcorp Alaska, the dominant oil and gas company in the Inlet and a big player on the Slope.

A batch of new companies in recent years has been attracted to Alaska by the state's generous oil and gas tax credits that paid up to 65 percent of explorers' costs.

The Legislature last year agreed to phase out Inlet credits by 2018 and may consider scaling back Slope credits this year. The state tax policy helped encourage a Chinese company, Chinanx Investment Group, to heavily invest in Nordaq in 2014, the two companies said, according to news articles.

The two wells subject to proposed fines in Southcentral are Nordaq's Tiger Eye 1 natural gas exploration well on the west side of the Inlet, across the water and northwest of Nikiski. The Shadura-1 natural gas exploration well is located about 15 miles northeast of Nikiski in the Kenai National Wildlife Refuge.

The commission issued letters to Nordaq Energy dated Dec. 2, calling on the company to pay the $2.5 million needed to cover the costs of the work, or to apply with the commission to do the work.

Proper abandonment and plugging of wells, such as capping with cement, prevents an unused well from leaking liquids or gases into the environment.

"Nordaq is not ignoring its obligations and duties, but there have been other circumstances with third parties involved that limited Nordaq from doing the work immediately," said Bob Warthen, Nordaq's senior adviser.

He said other private companies had decided not to take over the wells to pursue further activity. That left the cleanup responsibility to Nordaq.

Warthen said the lower portion of the wells had previously been plugged with cement. He said the company is pursuing permitting approval from the commission to properly plug and abandon the wells this spring and summer, including using cement to plug the upper portion of the wells.

"We have inspected them every year, and they're not leaking" gas or other fluids, said Warthen.

The commission said Friday it will hold on public hearings on April 4 in association with the alleged violations. Public comment will be collected until the day of the hearing.

Cathy Foerster, commission chair, said the violations are straightforward.

"Before you give a lease back, you the plug the wells," she said.

Nordaq drilled the Tiger Eye 1 well on a state lease in 2012, the agency said in the letter addressed to Warthen, signed by Foerster. The company surrendered the Tiger Eye leases in January 2016, and the state terminated the Tiger Eye unit in October, the letter said.

The commission intends to impose $150,000 in fines for that well.

Nordaq drilled the Shadura-1 well in 2012 on a lease owned by Southcentral regional Native corporation Cook Inlet Region Inc. CIRI notified the AOGCC Nordaq's leases had been terminated in June 2015.

The commission intends to fine Nordaq $621,000 for not properly plugging and abandoning the Shadura well.

Nordaq plans to plug and abandon the Shadura well by the April 4 meeting, Warthen said. It's a wintertime operation only, because traveling on snow helps protects tundra in the wildlife refuge.

Warthen said plugging and abandoning the Tiger Eye well is limited to operations in summer because a barge is needed to deliver supplies across the Inlet, after sea ice is not a hazard.